MANAMA: Gulf International Bank (GIB) reported consolidated operating income of $89.7 million for the six months of this year, down slightly compared to $102.6m in the first half of last year.
Total income of $150m was 16 per cent lower than in the prior year period while total expenses at $60.3m were 20pc down on the prior year. Within operating income, there was a significant year-on-year improvement in trading income resulting from the elimination of trading losses incurred in the prior year period following the termination of proprietary trading activities last year.
Net interest income, representing the bank's principal income source, was 24pc down on the prior year level.
This was attributable to the de-leveraging of the balance sheet in the current challenging market and economic environment and the negative impact on interest earnings of the substantial reduction in interest rates.
The adverse market conditions also contributed to lower fee-related income.
A $15m or 20pc year-on-year decrease in total expenses reflected the implementation of effective measures to align the cost base with the bank's current operating model and to further improve operational efficiencies.
A number of these measures were implemented in the latter part of the first half of the year and a further reduction in expenses will therefore be apparent in the second half.
In keeping with GIB's traditional conservative approach to provisioning, the bank made significant additions to both its specific and non-specific loan provisions in the second quarter. In view of the prevailing economic conditions, the bank increased its non-specific loan provisions so as to maintain provisions at a level consistent with the historical highest ever corporate default rates.
As a result, the non-specific loan provision was increased by $50m in the first half of the year to $230m. This high provisioning level will provide a conservative buffer in the current challenging environment.
The bank also established prudent and generous specific provisions against classified exposures. The net provision charge for the six months for both loans and securities amounted to $110.8m.
After taking account of the exceptional provision charge, the bank recorded a net loss of $22.5m for first half of the year.
A net loss of $65.4m was recorded in the second quarter after a net provision charge of $101.3m. Consolidated total assets at the half-year end were $17.1 billion.
A $7.9bn decrease in total assets during the first half of the year reflected the sale of $4.8bn of securities in March as well as a reduction in the loan portfolio resulting from actions taken to reduce leverage in the current uncertain environment.
Loans and advances amounted to $11.1bn at the end of June, being $1.9bn or 15pc down on the last year end level.
A particularly cautious approach has been adopted towards new lending activities in the current market conditions.
Placements, cash and other liquid assets amounted to $3.5bn, representing 20pc of total assets. Investment securities at $2bn largely comprised highly rated and liquid debt securities issued by major financial institutions and government-related entities. The surplus liquidity generated from the securities sale and reduction in the loan portfolio during the first half was utilised to reduce the bank's funding requirements.
At the half-year end, customer deposits represented 77pc of total deposits. Customer deposits principally comprise deposits from governments, central banks and government-related institutions. The bank is a net placer of funds in the interbank market. The Basel 2 total and tier 1 capital adequacy ratios at June 30 were a strong 20pc and 14.7pc respectively.